Sinocracy's Large Cap Index - A Work in Progress

By Colin Chen,

When we started this blog, I told myself I wouldn't turn it into a boiler room rumor machine by discussing individual stock or commodities, but there was little left to say about investing in China without actually doing it. So I got my hands dirty last night and compiled a list of large cap China stocks that I feel are undervalued. The portfolio is a work in progress and I have not used any optimizers.

Here are the companies that form the Sinocracy Large Cap Index:

China Telecom (CHA) - This is my equity of choice for the Chinese telecommunications sector. With the largest and one of the fastest growing computer user population in the world, China will feed the rise of this sleeping giant. The 18.58 P/E ratio still undervalues China Telecom's growth potential.

Lenovo (LNVGY) - Sure, HP and Dell are eyeing the Chinese domestic market as the sustenance for future growth, but nothing beats the home grown strategy to push back the foreign devils. Asian populations have shown constant favoritism toward domestic companies and China's treatment of Lenovo is no different. In fact, Lenovo's management is already exploiting its status and connections to the Chinese population by sponsoring the Beijing Olympics. Riots aside, the 2008 event is expected to give fantastic PR to this Chinese company in the nationalist domestic market. To the international business, the sponsorship instead establishes this firm's legitimacy.

China Life (LFC) - China's conservative risk averse population needs insurance. This company can offer exposure to several domestic sectors including healthcare and property growth.

Citic Pacific (0267.HK) - A resource holding company. CITIC pacific is a great way to obtain exposure to the commodity hungry Chinese economy.

The index itself is formed an equal part of each mentioned firms and will be compared to the FXI iShares FTSE/Xinhua China 25 Index. I used this morning's opening as starting prices.

Starting this morning at around 100,014 USD:

Company	Ticker	Share	Price (USD)	Total (USD)
China Telecom	CHA	385	65.00	25025.00
Lenovo	LVNGY.PK	1730	14.45	24998.50
China Life	LFC	447	55.91	24991.77
Citic Pacific	02567.HK	5985	4.18	24999.35
				100014.62

iShares FTSE/Xinhua China 25 Index (FXI) opened at 145.58 today.


I will review and reevaluate the portfolio bimonthly.

- H